Trump vs. the Economy

Between publicly chastising US Federal Reserve Chair Jerome Powell and escalating his trade war with China, US President Donald Trump has finally rattled the markets. While investors were happy to look the other way during the first half of Trump's term, the dangerous spectacle unfolding in the White House can no longer be ignored.

NEW YORK – Financial markets have finally awoken to the fact that Donald Trump is US president. Given that the world has endured two years of reckless tweets and public statements by the world’s most powerful man, the obvious question is, What took so long?

For one thing, until now, investors had bought into the argument that Trump is all bark and no bite. They were willing to give him the benefit of the doubt as long as he pursued tax cuts, deregulation, and other policies beneficial to the corporate sector and shareholders. And many trusted that, at the end of the day, the “adults in the room” would restrain Trump and ensure that the administration’s policies didn’t jump the guardrails of orthodoxy.

These assumptions were more or less vindicated during Trump’s first year in office, when economic growth and an expected increase in corporate profits – owing to forthcoming tax cuts and deregulation – resulted in strong stock-market performance. In 2017, US stock indices rose more than 20%.

But things changed radically in 2018, and especially in the last few months. Despite corporate earnings growing by over 20% (thanks to the tax cuts), US equity markets moved sideways for most of the year, and have now taken a sharp turn south. At this point, broad indices are in correction territory (meaning a 10% drop from the recent peak), and indices of tech stocks, such as the Nasdaq, are in bear-market territory (a drop of 20% or more).

Though financial markets’ higher volatility reflects concerns about China, Italy and other eurozone economies, and key emerging economies, most of the recent turmoil is due to Trump. The year started with the enactment of a reckless tax cut that pushed up long-term interest rates and created a sugar high in an economy already close to full employment. As early as February, growing concerns about inflation rising above the US Federal Reserve’s 2% target led to the year’s first risk-off.

Then came Trump’s trade wars with China and other key US trade partners. Market worries about the administration’s protectionist policies have waxed and waned throughout the year, but they are now reaching a new peak. The latest US actions against China seem to augur a broader trade, economic, and geopolitical cold war.

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An additional worry is that Trump’s other policies will have stagflationary effects (reduced growth alongside higher inflation). After all, Trump is planning to limit inward foreign direct investment, and has already implemented broad restrictions on immigration, which will reduce labor-supply growth at a time when workforce aging and skills mismatches are already a growing problem.

Moreover, the administration has yet to propose an infrastructure plan to spur private-sector productivity or hasten the transition to a green economy. And on Twitter and elsewhere, Trump has continued to bash corporations for their hiring, production, investment, and pricing practices, singling out tech firms just when they are already facing a wider backlash and increased competition from their Chinese counterparts.

Emerging markets have also been shaken by US policies. Fiscal stimulus and monetary-policy tightening have pushed up short- and long-term interest rates and strengthened the US dollar. As a result, emerging economies have experienced capital flight and rising dollar-denominated debt. Those that rely heavily on exports have suffered the effects of lower commodity prices, and all that trade even indirectly with China have felt the effects of the trade war.

Even Trump’s oil policies have created volatility. After the resumption of US sanctions against Iran pushed up oil prices, the administration’s efforts to carve out exemptions and bully Saudi Arabia into increasing its own production led to a sharp price drop. Though US consumers benefit from lower oil prices, US energy firms’ stock prices do not. Besides, excessive oil-price volatility is bad for producers and consumers alike, because it hinders sensible investment and consumption decisions.

Making matters worse, it is now clear that the benefits of last year’s tax cuts have accrued almost entirely to the corporate sector, rather than to households in the form of higher real (inflation-adjusted) wages. That means household consumption could soon slow down, further undercutting the economy.

More than anything else, though, the sharp fall in US and global equities during the last quarter is a response to Trump’s own utterances and actions. Even worse than the heightened risk of a full-scale trade war with China (despite the recent “truce” agreed with Chinese President Xi Jinping) are Trump’s public attacks on the Fed, which began as early as the spring of 2018, when the US economy was growing at more than 4%.

Given these earlier attacks, markets were spooked this month when the Fed correctly decided to hike interest rates while also signaling a more gradual pace of rate increases in 2019. Most likely, the Fed’s relative hawkishness is a reaction to Trump’s threats against it. In the face of hostile presidential tweets, Fed Chair Jerome Powell needed to signal that the central bank remains politically independent.

But then came Trump’s decision to shut down large segments of the federal government over Congress’s refusal to fund his useless Mexican border wall. That sent markets into a near-panic, and the government shutdown was soon followed by reports that Trump wants to fire Powell – a move that could turn a correction into a crash. Just before the Christmas holiday, US Treasury secretary Steven Mnuchin was forced to issue a public statement to placate the markets. He announced that Trump was not planning to fire Powell after all, and that US banks’ finances are sound, effectively highlighting the question of whether they really are.

Recent changes within the administration that do not necessarily affect economic policymaking are also rattling the markets. The impending departure of White House Chief of Staff John Kelly and Secretary of Defense James Mattis will leave the room devoid of adults. The coterie of economic nationalists and foreign-policy hawks who remain will cater to Trump’s every whim.

As matters stand, the risk of a full-scale geopolitical conflagration with China cannot be ruled out. A new cold war would effectively lead to de-globalization, disrupting supply chains everywhere, but particularly in the tech sector, as the recent ZTE and Huawei cases signal. At the same time, Trump seems to be hell-bent on undermining the cohesion of the European Union and NATO at a time when Europe is economically and politically fragile. And Special Counsel Robert Mueller’s investigation into Trump’s 2016 election campaign’s ties to Russia hangs like a Sword of Damocles over his presidency.

Trump is now the Dr. Strangelove of financial markets. Like the paranoid madman in Stanley Kubrick’s classic film, he is flirting with mutually assured economic destruction. Now that markets see the danger, the risk of a financial crisis and global recession has grown.

Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

We live in conflicted times. Whereas there are glimmers of hope within the sand storm, it is unclear where we are headed or what will remain once the storm has passed. The question is, whether there are some personal economic reasons why Trump is risking all for the wall(fence/obstruction). It is a large development project.

01/06/2019- The US executive branch presently is effectively an attempt to assume power as a totally dysfunctional dictatorship. Regardless of any ranting about a wall to deter illegal by anyone crossing in the US, the cabinet members (and do note, it is probably any new AND transitioning cabinet members,) are each receiving a $10,000 increase in salary from the Federal Government.

Do note the real fact is absolutely no one, including the ones that supposedly really count, are NOT admitting that action is any sort of problem at all! Simultaneously, a significant number of real working Federal Government workers, have been denied ANY EARNINGS PRESENTLY AT ALL.

What work effort are any members of the Executive branch cabinet, especially under the present circumstances, effectively performing?? If, the cabinet members do NOT publicly announce the inappropriateness of ANY increase in ANY earnings to themselves, they are functioning and supporting in complicit agreement with a dictator.

It doesn't take much of an imagination to recognize how 21st Century local robotic production techniques can be applied to reproduce a useful little tool from the Greeks in 4CE for real democratic application. The tool can even be applied quite effectively in a certain representative republic somewhere that sort of still exists, barely, and totally dysfunctionally:

Roubini, start passing that little link around the world. They can be made with robots, locally, by locals for locals. Manufactured in marble is even a great idea! Not only a confirmation, but a real, experiential process in that, or similar form of the “voting, AND selection process” would be fantastic!

There are a lot of options for the material of any "new” personal tokens. 5G and a bit of VPN could sure help in the local communication and production process.

Locals can really experience, and start participating and ruling themselves. Real Main Street Zones using AI and robots for manufacturing something good! Real people can use their own data, rather than being "ground zero" depletion zones, develop further devices and become opportunity zones. Every little bit counts!

AND, appropriate manufactured “devices” can still be used for higher level rotating positions of power with progressive levels of responsibility and appropriate incomes. Instead of ground zero destructive/plunder zones, real opportunity zones for the locals that live wherever, globally. Locals for locals, creating and using democratic applications for their own power. Oracle can still be good enough for certain logistic scenarios.

Start with a production and selection process that really counts. Talk about disruption!!!

Talk about application processes for improving political economic progress, with a bit of real wealth transfers and local economic growth thrown in the mix!!!

Disrupt economic cycles of greed, and cronyism right on its you know what. The money flows would change significantly, with local accountability and determined competition.

It's gonna take people like you to put some real "umph" + APPLY= real work efforts to effectively change political economic theory. Mathematicians really don't know how to use words appropriately.

The real balls are out of the wrong court.

Those French folks could be on to a real effective something, the French could be responsible for MAGA, AGAIN! Even though you're not French, you could help out, with a suggestion or two, for quite a number of legally defined geographic states.

Nouriel Roubin says corporate America used to support Trump’s presidency. After watching the downtrend in stock prices, and the “dangerous spectacle unfolding,” they are worried. In the past Trump unabashedly thumped his chest and claimed credit for each new uptick of economic growth, hitching his political fortunes to a rising stock market. With share prices tumbling, he geared up to blame the Federal Reserve Chair, Jerome Powell, for raising interest rates and ruining his good work. Yet Trump has himself to blame for the volatile stock market. The escalating trade war with China might not prevent Xi Jinping from fulfilling his Chinese dream. A shutdown of the federal government in order to get a senseless wall built, has made him a global laughing stock. The fading effects of the $1.5 trillion tax cut he ushered in at the end of 2017 will not reduce deficits and eradicate income inequality. Trump’s tax cuts benefit the wealthy, but not middle class families. American elites believe that Trump’s presidency is hurting their country. Foreign-policy officials are terrified that trade ties and security alliances are being wrecked. Scientists deplore the rejection of climate change. Some legal experts warn of a looming constitutional crisis. Many thought the value of tax cuts, deregulation and potential trade concessions from China might outweigh the hazy costs of weaker institutions and trade wars. And they are willing to play along with Trump’s short-sighted views – firms are freed from state meddling and unfair foreign competition, profits and investments soar.Trump’s fallout with the business world would prove his undoing. It can no longer be ignored that his impetuous ranting and unilateral actions without consultation, pose a threat to both the US and the wider world. In the past, corporate leaders and investors believed he was good for their business, and they were ready to turn a blind eye to his disastrous presidency. Now Republicans are under pressure to contemplate seriously what to do with him.Two years in office, they have achieved much to fulfil their obligation to conservative donors and may no longer need Trump any more. After tax cut and the right-wing takeover of the judiciary, Republicans finally realise that Trump is more trouble than he is worth. Amid Robert Mueller’s Russia probe, questions have been asked, whether Trump would resign of his own volition, if he were impeached or indicted. As narcissistic as he is, both options are not palatable. But he might not have the choice anymore, when the day comes that he finds himself cornered by prosecutors.

The analysis is rigth, but last reports from China, point to a concessions about investments and technological issues from Beijing. That is no much help to low grow next year due to wrong short term policies of Trump. That will face a serious challenge how to fund public investment with a large deficit. So mild grow in the US from Demo in Capitol will prevail. The above will avoid a major world crisis.

A grim report on the accomplishments of the Trump statesmanship so far and the upcoming risks for the second half of the term. Really mindboggling how broad the passive support for his actions has been in the party and now the adults in the WH room are ever dwindling. So what's the forecast for 2019? Neutral?

“As matters stand, the risk of a full-scale geopolitical conflagration with China cannot be ruled out.” (That sentence is a true, and critically valid statement.)

“Now that markets see the danger, the risk of a financial crisis and global recession has grown.”(This sentence is a true statement.)

There are quite a number of international problems that need to be solved, before the immediate consequential risks can even be determined, based on the validity of those two statements.

In an attempt to contribute to solving some of the problem, here are a few more statements.

There are a number of steps that must be taken to stop the “flirting with mutually assured economic destruction.” One of the first steps is to tackle any number of problems in a reasonable and logical way.

1. First, global community political leaders need to acknowledge that one of the real ways to stop flirting with mutually assured economic destruction is that the Arab League needs to resolve their internal problems, so that specific organization can begin to function as a reasonably responsible organization, based on its own design, and goals.

Here is a synopsis of what the Arab League needs to examine:

“The Arab League is a political organization which tries to help integrate its members economically, and solve conflicts involving member states without asking for foreign assistance. It possesses elements of a state representative parliament while foreign affairs are often dealt with under UN supervision.The Charter of the Arab League[5] endorsed the principle of an Arab homeland while respecting the sovereignty of the individual member states. The internal regulations of the Council of the League[20] and the committees[21] were agreed in October 1951. Those of the Secretariat-General were agreed in May 1953.[22]Since then, governance of the Arab League has been based on the duality of supra-national institutions and the sovereignty of the member states. Preservation of individual statehood derived its strengths from the natural preference of ruling elites to maintain their power and independence in decision making. Moreover, the fear of the richer that the poorer may share their wealth in the name of Arab nationalism, the feuds among Arab rulers, and the influence of external powers that might oppose Arab unity can be seen as obstacles towards a deeper integration of the league.”

https://en.wikipedia.org/wiki/Arab_League

2. Second, When leaders of the Arab League have finished reading, discussing and applying principles from the following document, they need to contact any of a number of other human beings, possibly Dr. H.E. Hellyer, to assist in defining, declaring, and implementing the goals determined by the Arab League to be the goals of the Arab League member states. Here is a link to the document:

The Fed policy finding that rates ought to go up now was planned all along. This variable was not really in play.

The tax cuts were. Some years from now, if we are told we must ensure austerity to balance the budget, we should remember this root cause.

As for China... the Trump administration certainly seems determined to take the path of head on confrontation. China hawks, perhaps, have a plausible explanation of how this would bring about a better result. (By plausible, I mean it had better not be the stuff that informs the apocalyptic blunderings of middle east related statecraft.)

Also, let's note that both hypothetical alternatives to Trump during the current presidential term - Clinton, Pence - are also China hawks. So the direction of the trend was "baked in the cake" already. The Trump administration accelerates it, and its not clear that this is even considered such a bad thing by the national security types.

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